Midterm Bisek Chapter 2

BUSINESS ECONOMICS TAKEHOME MIDTERM TEST MM5006

By: Muhammad Fiqri Rihyawa !"#$6056 %M#

&'()ur'r: *ud+ *ud+ A,,+r+- .h/D Dr/ AhDu, DO DO Dr1/ Si1d2ia)m+ K/ 3idhai,ra)- MS(/

MASTER OF BUSINESS ADMINISTRATION SCHOO& OF BUSINESS AND MANA%EMENT BANDUN% INSTITUTE OF TECHNO&O%* 4AKARTA !0$

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CHA.TER !

1. Yes, it will square with the objective of profit maximization. Because for instance the computer is been donated to the school. The computer that been provided may unloc  some potentials of the students in that school, the students can become some superior  !raduates that can be hired for that company. This will increase the employment maret for the company. "e can also assume that after !raduated, the students will wor on other  company and recommend to the company the computers that have been donated to their   previous school. #f the additional profit from future sales exceed the cost that have been out for the donation, we can consider it as a profit maximization. $. %ettin! profit mar!in not !oin! to result in any profit maximization. %ettin! a profit mar!in to hi!h may result a lower profit than can be achieved with lower profit mar!in. &or example' "ith (1) million revenue and 1)* profit mar!in will result in (1 million  profits, while (+) million revenue with * profit mar!in will results in (1. million  profits. +. #t-s true that !rowth of consumer information or!anization, le!al requirements, warranty requirement can increase the cost. But it will !et into the company-s cost calculation which the company will still can attempt to maximize the profit in new circumstances. #f  the cost didn-t exist, maybe the total profit level will be quite hi!h than if there is the existence of this cost. But the presence of process of profit maximization will still exist. .  Profit maximization' is process of the short or lon! run by which the prices is determined  by a firm and output level that resultin! in return of !reatest profit. Shareholder wealth maximization ' is a process by mana!ers to maximize the wealth of the companies they run, resultin! in increased stoc prices that can boost up the net worth of  shareholders %hareholder wealth maximization is more comprehensive. . #n !eneral, some stocholders didn-t now about the maximum profits the companies main!, so they will loo for a satisfactory return. The mana!ement on the company will not be held for maximization but to mana!e the corporation in a way to !ive satisfaction to the shareholders. /. 0rincipal a!ent problem can be referred to the possibilities of diversity in terms of  objective by both the owners and mana!ers. #t exist because there are some different view of the company objective between the owners and the mana!ers. . Because mana!ers only own a small portion of corporation stocs, the interest of the mana!ers may not be served best by maximizin! value of the corporation. They only focus on maximizin! their own income and perquisites. 2. •

%ome taeovers, proxy contest can occur to the non3performin! company because of  competitive pressures that does some decline to the stoc prices.

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There is a thin! called mana!ement remuneration that is tied to company-s  performance, and mana!ers will be awarded by a stoc options that can receive some values when price of shares increases. That is the time where mana!ers will have interest in maximizin! stocholder welfare.

4. Yes, it does. 0rofit and wealth maximization will be the most inclusive objectives. 1). 5o, it doesn-t. Because accountin! depreciation is calculated on historical cost. 11. #mplicit cost can be included in the cost which not treated by the accountant, such as owner-s opportunities cost. 6conomic profit will be much lower than the accountin!  profit. 7pportunities cost will be included in the economist calculation of cost. 6conomist also include normal profit to the calculation too. 1$. •

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8omparin! the time, we spent on the employment and the effort that we !ive inside a  projected business profit with the salaries we can !et in other companies. 9 8omparin! our investment :savin!s, account, etc.; with the interest that we can !et from investment on the business elsewhere.

1+. The chan!e in equipment value and chan!e in equipment replacement cost will reflected  based on the depreciation. 1. There are some thin!s that are faced by multinational corporations, such as le!al differences, economic, and tax conditions. This will complicate the tas of mana!ers from the corporations and sometimes will create constraints on the actions. #f some mana!ements are facin! with such additional ris and restriction, the corporations still can try to achieve the !oal of profit maximization. 1. Transaction cost' 8ost that the company incurs when dealin! with other entities. The cost incurred are contract ne!otiation and enforcement, investi!ation, and transaction coordination. The possibility of opportunistic behaviour can mae transaction become risier and tend to increase transaction cost. 1/. "hen the marets expanded, some companies which have specialization in a particular   product will start to !row and become efficient, resultin! in a lower cost productions than some inte!rated companies. The internet plays some role in decreasin! transaction cost :cost of search, investi!ation, contractin!, and coordination;. 1. The reason for company start to internalize some of the cost are' %pecifyin! in assets that can increase the occurrence of opportunistic behaviour   5e!otiation and enforcement contracts &requency and uncertainty of transactions. • • •

12. 8onstant dividend !rowth formula' 0 < =1: 3 !; ($ dividend paid last year  +

This year dividend expected to be /* hi!her  $>:1.)/; ? :).1+ 3 ).)/; < $>:1.)/;?).) < (+).$4 ?share +).$4 x $,))),))) < (/),1,$2 14. %hareholder wealth' calculated by multiply the number of share outstandin! by the stoc   price. @aret Aalue dded or @A' is the differences between company-s maret value :stocs C bonds; and the capital contributions from investor. This concept will be meanin!ful  because it measures increase in wealth of investors above what they have contributes.

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